Question

The economy is in equilibrium when Real GDP is . At this point, the economy is also in . Which of the following did Keynes argue would be needed to move the economy to equilibrium at Natural Real GDP? Check all that apply. A decrease in consumption A decrease in government purchases An increase in government purchases

Answer 1

Answer:

c. An increase in government purchases

Explanation:

Note: The full question is attached below

When the real GDP is $550, the total expenditure will be $450 + $55 + $70 = $575

When the real GDP is $600, the total expenditure will be $475 + $55 +$70 =  $600

Note: Graph showing total production and total expenditure is attached below as well. The economy is in equilibrium when real GDP is $600 ​​​​. At this point, the economy is also in recessionary gap.

Thus, an increase in government purchases will be needed to move this economy to equilibrium at natural real GDP.